The rapid expansion of the Cryptocurrency market has led to a surge in Bitcoin mining activities worldwide. As the industry searches for ideal locations, the Middle East has begun to emerge as an attractive hub for Bitcoin mining operations. This article explores the current state of Bitcoin mining in the region, the factors contributing to its attractiveness, and the outlook for the future of the industry in the Middle East.
State of the Bitcoin Mining Industry in the Middle East: Major projects announced
A. UAE
As of April 2023, a total of 900 MW in Bitcoin mining facilities has been announced:
650 MW facility (announced in November 2021): Phoenix Technology, a UAE-based technology company, is constructing the world’s largest Bitcoin mining farm with a USD 2 bn investment. The company is reportedly utilising the latest technology from Bitmain and claims the mining farm will be 100% green. Additionally, Phoenix Technology has expressed ambitions of expanding the Bitcoin mining Ecosystem to other areas of the MENA region.
250 MW facility (announced in January 2023): Marathon Digital Holdings, a globally leading Bitcoin mining company, is partnering with Abu Dhabi’s Zero Two to establish a USD 400 mn Bitcoin mining facility in Abu Dhabi. The joint venture (Abu Dhabi Global Market entity) will initially set up and operate two mining sites with a combined capacity of 250 MW. Zero Two will hold an 80% stake in the project. This move marks a strategic shift for Marathon, which has typically relied on hosting companies for Bitcoin mining instead of developing its own facilities. Furthermore, Abu Dhabi’s growing interest in the Cryptocurrency sector is evidenced by the recent regulatory approvals granted to Swiss-based digital bank Sygnum and Crypto exchange Binance to operate in the capital.
B. Oman
The country’s sovereign wealth fund, Oman Investment Authority, has acquired a stake in Crusoe Energy Systems, a US company that uses stranded natural gas to power Crypto mining to help reduce gas flaring by fossil fuel producers. Crusoe will open an office in Oman to help deploy power generators and mining equipment to capture gas at well sites. Additionally, the Omani Government has created a regulatory framework to promote the development of digital currencies, allowing businesses to use Cryptocurrencies as payment methods and creating a licensing system for digital currency exchanges. In addition, according to the market, there are currently up to 200 MW of capacity under discussion.
Why Do We Expect the Middle East Bitcoin Mining Market to Grow?
Bitcoin miners are finding very favorable conditions for their industry in some parts of the Middle East. We believe 4 key factors will drive this further:
A. Excess Energy
The Middle East benefits from abundant and affordable energy resources, leading to some of the lowest electricity prices in the world. This excess energy is critical for the profitability of Bitcoin mining, as the industry relies heavily on low-cost electricity to maintain operations. The Middle East has three main sources of excess energy:
Seasonal load patterns (winter vs. summer)
Peak energy patterns which trigger curtailment
Flare gas and methane utilisation from the oil and gas industry
By leveraging this excess energy, mining operations can negotiate a favorable tariff in alignment with the goals of the utility companies.
B. Bitcoin Miners Can Enhance Attractiveness of Renewable Assets
The Middle East’s energy transition towards a growing share or renewable power is in full speed. The renewable energy assets often produce more power at peak then the grid is willing to offtake to match its natural demand – especially in winter. This surplus energy is usually curtailed, i.e., wasted. Instead of wasting this energy, it can be monetised to power Bitcoin mining farms, which increases the overall utilisation and therefore return profile of the renewable power assets. In addition, we see more and more circular economy applications that can utilise the heat from these data centers for green houses and even pilots on producing drinking water.
C. Perfect Demand Side Management Profile
As the energy transition integrates more intermittent energy producers and consumers (central and decentral renewables, electric vehicles, etc.), the grid of the future will more and more rely on demand side management, i.e., incentivising flexible on and off ramp of energy usage of industrial and residential consumers. A Bitcoin mining farm can ramp its entire power demand up and down in a matter of minutes. In addition, Bitcoin mining is a sprint, not a marathon given that a new block is mined every 10 minutes. On the one side, it is therefore perfectly fine for miners to ramp down (in line with the business case threshold) and on the other side, grid operators have a flexible demand side management partner that can increase and decrease load and support grid stabilisation.
D. Strategic Investment Asset and Cornerstone of the Digital Asset Economy
More and more investors see Bitcoin as a strategic asset class, allowing for seamless, audit-proof transactions across borders. In addition, the Bitcoin mining industry often presents a key cornerstone for building up a digital asset industry in countries. By embracing the Cryptocurrency mining industry, countries can diversify their economies, create new job opportunities, and develop expertise in cutting-edge technologies.
Let’s Talk About the Biggest Challenge: The Climate
Despite the Middle East’s favorable conditions for Bitcoin mining, the region’s harsh climate and dust accumulation pose challenges for mining operations. However, technological advancements such as dust-proofing solutions and immersion cooling systems have mitigated these concerns, enabling mining equipment to function optimally even in challenging environments. Dust-proofing solutions, such as sealed server racks, positive pressure systems, and air filtration systems, protect mining hardware from dust, reduce wear-and-tear, and maintain the efficiency of cooling systems. Immersion cooling technology submerges mining hardware in non-conductive liquids, dissipating heat more efficiently than traditional air-cooling systems, and increasing hardware longevity. By adopting these innovative technologies, Bitcoin mining operations can overcome the challenges posed by the Middle East’s climate and unlock the region’s full potential as a hub for the global mining industry.
Outlook: A Significant Portion of the Global Hashrate Might be in the Middle East
If the right incentives are provided, a significant portion of the global Bitcoin mining hashrate could come from the Middle East. Local champions can be born, that master not only integration with local utilities but also have proprietary knowledge of operating in the specific climate conditions and creating circular economy use cases.
Roland Berger is very well experienced with the entire life cycle of Bitcoin mining industry, from strategy, business case to operational improvement and investments. We have developed a proprietary due diligence framework to assist investors in navigating the evolving Bitcoin mining landscape, make operational decisions and mitigate potential risks. It is based on 5 dimensions and leverages our in-depth know-how of the industry.